Annual Report 2006

Selected Financial Data

At a Glance

Selected Financial Data 2006 2005 2004 2003 2002

Total Assets $816,633 $665,008 $590,066 $521,315 $465,549

Total Loans, net 607,932 512,448 450,676 390,026 321,634

Total Deposits 549,918 464,836 411,306 341,315 289,830

Non-interest deposits 74,850 47,573 43,837 34,386 25,790

Total shareholders’ equity 65,541 42,775 42,781 42,289 43,297

Net income 4,111 3,749 2,588 2,302 2,126

Net interest income 20,038 17,714 14,990 13,577 11,698

Non-interest income 4,794 4,865 3,271 3,684 3,160

Non-interest expense 19,116 16,155 13,903 13,104 10,938

Basic earnings per share 1.36 1.43 0.98 0.88 0.79

Diluted earnings per share 1.35 1.41 0.97 0.87 0.79

Book value per share 19.06 16.42 16.27 16.13 16.44

Cash dividends per share $0.64 $0.58 $0.54 $0.53 $0.53

Return on average assets 0.55% 0.59% 0.47% 0.47% 0.47%

Return on average equity 7.73% 8.68% 6.10% 5.37% 4.91%

Net interest margin 2.85% 2.98% 2.89% 2.95% 2.78%

Stock price at year-end $22.51 $22.80 $21.40 $20.18 $13.86

0

200

400

600

800

1000

2002

$465.5

2003

$521.3

2004

$590.1

2005

$665.0

2006

$816.6

2002 2003 2004 2005 2006

$13.86

$20.18$21.40

$22.80 $22.51

2002 2003 2004 2005 2006 2002 2003 2004 2005 2006

2002 2003 2004 2005 2006 2002 2003 2004 2005 2006

0

5

10

15

20

25

0

100

200

300

400

500

600

700

800

0

1

2

3

4

5

0

100

200

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500

600

0

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80

Total Assets 2002-2006Year-End Stock Price 2002-2006

Non-InterestDeposits 2002-2006

Total Net Loans 2002-2006 Net Income 2002-2006

Total Deposits 2002-2006

$321.6

$289.8$341.3

$411.3

$464.8

$549.9

$25.8

$34.4

MIL

LIO

NS

MIL

LIO

NS

MIL

LIO

NS

MIL

LIO

NS

MIL

LIO

NS

$43.8$47.6

$74.9

$390.0$450.7

$512.4

$607.9

$2.1$2.3

$2.6

$3.7

$4.1

Letter to Shareholders

We are pleased to report that 2006 was another great year for Community Bank Shares.

The most significant event of the year was the addition of The Scott County State Bank to the Community

Bank Shares family on July 1, 2006. Profitability and per share ratios (excluding non-recurring items)

continued to show improvement in 2006. Most importantly, we continue to build a community banking

platform which will drive continued increases in shareholder value as we move forward.

Non-interest deposit growth continues to be our most important strategic objective. Over the

three year period ended December 31, 2006, non-interest deposits grew by a compound annual growth

rate of 13.4% excluding the acquisition of The Scott County State Bank. During 2006, non-interest

deposits grew by just over 57% including The Scott County State Bank and 2,755 new non-interest

checking accounts were opened by Your Community Bank. We believe that the substantial core deposit

growth over the last few years is a result of delivering unparalleled service in our markets.

We will continue to improve our existing product offering to enhance our market position in

Floyd, Clark, and Scott Counties in Indiana and Jefferson and Nelson counties in Kentucky. We are focusing

our efforts on core deposit growth to fund targeted loan growth to increase our net interest margin. We

are excited about our new Treasury Services department, which will be a significant advantage in our effort

to grow non-interest bearing deposits. We have already signed up a number of new remote capture and

lockbox customers and will continue to market these services aggressively.

We would like to express our gratitude to the directors, officers, and employees of Community

Bank Shares, Your Community Bank, and The Scott County State Bank. Our team is committed to

providing the “World’s Greatest Service,” which will be the driving force behind the future success of our

company. Our employees continue to deliver this high level of service every day, which is the basis of the

competitive advantage that we are developing to enhance your shareholder value.

The interest rate environment was challenging for banks during 2006 and continues to put

pressure on bank net interest margins in 2007. A flat to inverted yield curve, which began in 2006 and still

persists as of the date of this letter, typically reduces the spread between a bank’s yield on earning assets

and its cost of funds. We believe that we can counter this pressure and improve our net interest margin

by focusing on our broad strategic objectives of disciplined asset growth through the generation of core

deposits. We thank you for your continued support and look forward to an outstanding 2007.

Timothy T. Shea

Chairman

James D. Rickard

President & CEO

#Our ServiceCommitment 9 I will respond to all requests and meet your

needs within the same day or within your expectations.

Your Community Bank and Scott County State Bank continue to explore innovative solutions to help you manage

your business finances more effectively and efficiently. In 2006, we introduced two new services designed to

improve your cash flow and make managing your business easier.

Business e-Delivery allows corporate clients to capture check deposits at their location and transmit the check

images electronically for immediate deposit into your account. Sometimes called “remote capture,” Business e-

Delivery offers a number of advantages, including:

• Elimination of the physical transport of checks to the branch for deposit.

• Elimination of “mail” float.

• Convenience and safety.

• Increased availability and cash flow.

• Reduction in deposit errors.

• Extended deposit deadlines.

If you bill your customers on a regular and recurring basis, try our new Lockbox service, which allows your

incoming customer payments to bypass your office and go directly to the bank for processing. The payments

are processed quickly and efficiently, relieving your staff of all the time involved in processing and depositing

payments. You have complete access to payment and remittance information in various electronic formats.

As our commercial banking business grows, we continue to provide companies of all sizes with a full range of

accounts, loans and other financial services such as sweep accounts and credit card payment services. We stay

close to our customers, and the relationships we build allow us to understand their needs more completely. You

can see this reflected not only in new services such as those described above, but also in our flexible banking

hours, in local lending decisions and in the way we greet every customer.

Because it’s your business.

I will smile and acknowledge you immediately as you walk through the door.

#Our ServiceCommitment 2

Your Community Bank and Scott County State Bank continue to set a higher standard when it comes to the way

we serve our customers. At Scott County State Bank we are currently in the process of restructuring our existing

accounts, as well as adding new products and services to better suit customer needs. In 2006, Your Community

Bank opened our new Eastpoint banking center in Louisville, remodeled our Charlestown Road branch, and

started construction on our newest Jeffersonville branch on 10th Street.

Your Community Bank also launched a more robust version of our website to enhance the customer’s online

experience with us. The new site offers real-time access to account information rather than a one-day delay, plus

live access to a Your Community Bank team member online during normal banking hours.

As 2006 drew to a close, we were finalizing the details of two exciting new checking choices for customers: our

Prestige Account, a tiered, interest-bearing checking account, and New Opportunity, a basic account for those

who may need another chance in maintaining a checking account.

Our seasoned team of mortgage lenders faced rising interest rates and a slowing housing market with great

service and hard work, continuing their efforts to make Your Community Bank and Scott County State Bank the

mortgage lenders of choice for the markets we serve. Scott County State Bank will gain access to the secondary

mortgage market in 2007, enabling customers to receive lower rates for longer terms.

Our commitment to serving customers in a truly unique fashion is reflected in every aspect of our operations,

including our annual employee awards celebration. All of our Star Awards are based on outstanding service

delivery, including:

• Customer Service Representative of the Year

• Best New Employee

• Best Internal Service

• Best External Service

• Best Community Service

• Best Retail Salesperson

• Best Commercial Salesperson

• Best Support Employee

• Your Community Bank Employee of the Year

• Scott County State Bank Employee of the Year

We continue to offer our customers the kinds of amenities you might expect from a fine hotel. From fresh-baked

cookies and gourmet coffee, to a smiling staff member with an umbrella on a rainy day, we go out of our way to

make every customer feel appreciated.

Because It’s Your Life.

I will always look for opportunities to do a little extra for you.

#Our ServiceCommitment 5

In 2006, our banking family grew with the addition of The Scott County State Bank as part of Community Bank

Shares. Founded in 1890 and known simply as “The Bank” in the Scottsburg area, its commitment to friendly,

personal service is a wonderful fit with ours. The Scottsburg locations will continue to operate under their

existing name, offering customers great service while enjoying access to the financial resources of Community

Bank Shares.

We also continue to offer customers access to investment guidance through our alliance with Smith Barney. In

our quest to offer customers all of the financial services they need under one roof, access to this well-known firm

is available at the Smith Barney Investment Center located in our Main Office in New Albany, Indiana.

Securities are not insured by the FDIC or any other federal government agency, have no financial institution

guarantee and may lose value. Your Community Bank is not affiliated with Smith Barney.

Because It’s Your Investment.

We recognize our role as stewards of the communities in which we live and serve. In 2006, Community Bank

Shares took our commitment to that stewardship to the next level by creating the Your Community Bank

Charitable Foundation, Inc. Created in partnership with the Community Foundation of Southern Indiana, this

foundation will help ensure that the vital charitable work of our company will continue well into the future.

With the help of its employees, Your Community Bank continues to support and promote a diversification of

causes and special projects, donating $178,233.12 back into our communities in 2006, supporting a wide range

of worthwhile organizations including the YMCA, One Southern Indiana, Harvest Homecoming, New Hope

Service, Rauch, Inc., Bridgepointe Goodwill, Stephen Foster Productions, Greater Louisville, Inc., the Kentucky

Humane Society, the March of Dimes and Metro United Way.

Scott County State Bank also supports a number of of causes and community organizations, including the Lincoln

Heritage Council Boy Scouts of America, The Scott County Community Foundation, “We Care” and “Kid’s First”

auctions, the Scott County Economic Development Corporation, the Scott County Veteran’s Memorial Fund, and

the Mayor’s Good Neighbor Awards Banquet. The bank also holds an annual “Bank on Good Health” day at the

main office and an annual flu shot event in October, each of which serves an average of 300 people.

Because It’s Your Community.

COMMUNITY BANK SHARES OF INDIANA, INC.

Timothy T. Shea, Chairman

Gary L. Libs, Vice Chairman

George M. Ballard

R. Wayne Estopinal

Gordon L. Huncilman

Dale L. Orem

James D. Rickard

Kerry M. Stemler

Steven R. Stemler

Edward Pinaire, Special Consultant

YOUR COMMUNITY BANK

Gary L. Libs, Chairman

Dale L. Orem, Vice Chairman

Robert E. Campbell, Jr.

Kevin J. Cecil

R. Wayne Estopinal

Gregory A. Huber

Gordon L. Huncilman

Gerald T. Koetter

W. James Lintner, Jr.

Donna Broughton Meade

Robert L. Pullen

James D. Rickard

Timothy T. Shea

Kerry M. Stemler

Steven R. Stemler

Edward Pinaire, Special Consultant

Directors and Officers

NELSON COUNTY BUSINESS DEVELOPMENT

Guthrie M. Wilson. III, Chairman

George Ballard

Christopher L. Bottorff

Richard Heaton

Ken Rapier, Jr.

James D. Rickard

Timothy T. Shea

Francis X. Smith, II

THE SCOTT COUNTY STATE BANK

Steve Hauer, Chairman

Eric Graham

Philip L. Stewart

Terry Lowry

Paula Murray

James D. Rickard

Syd Whitlock

OFFICERS OF SCOTT COUNTY STATE BANK

Syd Whitlock President/CEO

Russell Comer Senior Vice President/SLO

James Moon Vice President/Loan Review Officer

Kathleen Julian Executive Vice President/Operations

Pam Kirby Assistant Vice President/Data Processing Manager

Brian Everhart Assistant Vice President/Loan Officer

Tami Nance Assistant Vice President/Loan Dept. Manager

Dawn Roll Assistant Vice President/IT

Julie Bruce Assistant Vice President/Cashier

Sharon Craig Assistant Cashier/CSR Manager

Paula Everhart Assistant Cashier

Joyce Hoard Assistant Cashier/Head Teller

Michelle Lakins Community Relations Officer

Scott Murphy Loan Officer

Elaine Seaver Assistant Cashier

James Stephens Security/Compliance Officer

Bonnie Walton Internal Auditor

HOLDING COMPANY AND BANK OFFICERS COMMUNITY BANK SHARES

James D. Rickard President / CEO

Paul A. Chrisco Senior Vice President, Chief Financial Officer

M. Diane Murphy Senior Vice President / Community Relations Officer

George Gray Ball Senior Vice President / Credit Administration

Kevin J. Cecil Senior Vice President

J. Robert McIlvoy Senior Vice President, Retail Banking

Christopher L. Bottorff Senior Vice President

Jeffrey T. Cash Senior Vice President, Audit and Risk Management

Linda Critchfield Senior Vice President, Operations and Information Technology

Bill Wright Senior Vice President, Treasurer, and Director of Planning

Carl Page Vice President, Human Resources Manager

Scott Carr Vice President, Compliance Officer

Pamela P. Echols Corporate Secretary

Christie R. Simmons Assistant Controller

YOUR COMMUNITY BANK

Kevin J. Cecil President, Indiana Market Area, Chief Executive Officer

Christopher L. Bottorff President, Kentucky Market Area

James D. Rickard President and CEO of Community Bank Shares

Paul A. Chrisco Senior Vice President

M. Diane Murphy Senior Vice President, Community Relations Officer

George Gray Ball Senior Vice President, Chief Credit Officer

J. Robert McIlvoy Senior Vice President, Retail Banking

Brian R. Brinkworth Senior Vice President/Manager, Business Services

Joseph I. Bauer Senior Vice President, Business Services

Philip P. Ryan Senior Vice President, Business Services

Linda Critchfield Senior Vice President of Operations and Information Techology

Bill Wright Senior Vice President, Treasurer, Director of Planning

Carl Page Vice President, Human Resources Manager

Vicki A. Rough Vice President and Manager, Private Banking

Robert M. Sullivan Vice President, Business Services

Eric Selby Vice President, Business Services

Le Anne Scott Senior Vice President, Business Services

Gregory P. Frist Vice President, Business Services

Lisa Lutgring Vice President, Manager, Treasury Management

Charles Gill Vice President, Credit Administration

Marjorie Knoop Vice President, IT System Liason

Howard Keene Vice President, Market Manager, Nelson City

Brian Austin Vice President, Information Technology Department Manager

Timothy Rigrish Vice President, Security Officer

Todd Frossard Vice President, Retail Banking

Glenn Roney Vice President, Retail Small Business Development

Frank LaRocque Vice President, Treasury Management, Sales

Scott Carr Vice President, Compliance Officer, CRA Officer, Bank Secrecy Act Officer, Information Security

Jim McMahel Vice President, Collections Manager

Jenna Hagedorn Vice President, Loan Operations Manager

Todd Frossard Vice President, Retail Banking

Pamela P. Echols Corporate Secretary

Jeffrey T. Cash Internal Auditor

Maury Young Controller

Sharon Galardi Human Resources Manager

Brenda G. Bowling Assistant Vice President

Kyra L. McCormick Assistant Vice President

Michael G. Shaughnessy Assistant Vice President

Rose Torres Assistant Vice President, Internal Audit

Jeff Holthouse Assistant Vice President, Business Services

Chellis Austin Assistant Vice President, Business Services

Kathy Barnes Assistant Vice President, Deposit Operations Manager

Nicki L. Harbaugh Assistant Vice President, Retail Banking

Christie R. Simmons Assistant Controller

Keisha Lamb Assistant Corporate Secretary

Karen M. Crecelius Banking Officer

Susan Metka Banking Officer

M. D. Smith Banking Officer

Crystal L. Byrd Banking Officer

Trace Wimsatt Banking Officer

Josh Albertsen Banking Officer

David Dunn Banking Officer

Julie Taylor Banking Officer

Tabitha Nalley Banking Officer

Jennifer Gilland Banking Officer

Stephanie Heil Banking Officer

Thomas Nolan Banking Officer

Debbie Frederick Research and Special Projects Officer

Barb Shields Document Review Officer

Stacy Graf Merchant Services Officer

Amanda Matheny Business Services Officer

Margaret Richards Manager, Document Scanning Center

Jenny Hoffman Operations Officer

Melissa Joyce Accounting Officer

Ray Hart Credit Analyst

New Albany

Main Office

101 W. Spring St.

812-944-2224

Main Office Drive-Thru

401 E. Spring St.

812-981-7303

2626 Charlestown Rd.

812-949-6850

Grant Line WAL-MART

2910 Grant Line Rd.

812-948-8945

Peachtree Centre

4328 Charlestown Rd.

812-949-6800

State Street

480 New Albany Plaza

812-949-6852

Clarksville

901 E. Lewis & Clark Pkwy.

812-288-2680

Jeffersonville

201 W. Court Ave.

812-285-1111

5112 Hwy. 62

812-285-4050

Jeffersonville East

Coming Spring 2007

Where to find us

Hamburg

Drive-thru

Court Ave.

Eastpoint

ClarksvilleMain Office

Hwy. 62State StreetCharlestown Rd.Grant Line

John Rowan

Stephen Foster

Blankenbaker

Cedar Springs

St. Matthews

PeachtreeHighlander PointHamburg

102 Heritage Square

Sellersburg

812-246-8321

Floyds Knobs

Highlander Point

701 Highlander Point Dr.

812-923-7902

Scottsburg

Main Office

125 W. McClain Ave.

812-752-4501

Wardell St. Drive-Thru

155 W. Wardell

812-752-4501

Gardner Branch

1050 N. Gardner

812-752-5883

Westview Branch

57 N. Michael Drive

812-752-9656

Louisville

400 Blankenbaker Parkway

Ste.100

502-489-3070

Cedar Springs WAL-MART

7101 Cedar Springs

502-762-1665

Eastpoint

13205 Magisterial Drive

502-489-3600

St. Matthews

4510 Shelbyville Rd.

502-895-1713

Bardstown

106 A W. John Rowan Blvd.

502-348-9278

119 E. Stephen Foster Blvd.

502-348-7150Customer Service

812-981-7750 local

1-866-944-2004 toll-free

On Call 24-hour Telephone Banking

812-981-7357 local

1-888-291-9415 toll-free

Treasury Services

812-981-0842

Indiana Kentucky

Business Hotlines

Clark County: 812-981-7705

Floyd County: 812-981-7300

Louisville: 502-489-3070

Bardstown: 502-348-1975

Scottsburg: 812-752-4501

Mortgage Lending

812-981-7713

Online

www.yourcommunitybank.com

www.scottcountystatebank.com

4 Scott County State Bank Locations

Jeffersonville East